Copy

Afternoon All,

 
Nanollose Limited (NC6.ASX $NC6) has risen 54% and 76% over the past 2 days, and taking a breather today (-7.4%). At 12c the market cap is A$14.2m. At this market cap (relatively small in the current market), it is well worth looking at their technology. And despite the price rise and turnover, its worth understanding what they are trying to achieve. 

 

NC6 – What they do.

A biomaterials company, commercialising scalable technology to create fibres and fabrics with minimal environmental impact.  The short layman’s version is they are creating fibre’s from waste products that have minimal environmental impact from cellulose and/or waste products. Think about it as naturally produced fibres (not petroleum based) that can outperform many natural and synthetic fibres. A more detailed breakdown below.

Why the stock Launched – Lodged Joint Patent with Grasim Industries.

On the 13th NC6 announce – “NANOLLOSE AND GRASIM FILE JOINT PATENT APPLICATION FOR HIGH TENACITY LYOCELL”. So what is lyocell? Lyocell is a widely used man made fibre usually made from wood or bamboo pulps that is commonly used to make Tencel fabrics. They are more “breathable” than synthetics performing more like cotton. Less shrinkage than cotton. The NC6/Grasim has lodged a patent for a form of Lyocell “nullarbor™” that is finer than silk and significantly stronger than conventional lyocell (made from wood pulp). Add to this that Nullabor is also wood-free, the fibre is both better and has a lower environmental footprint than the traditional Lyocell.

Potential? The first vertical is enormous. (better, stronger and greener).

 

The cheat sheet for the nullarbor™ fibre looks like this
 

  • Thinner than silk (the width of the fibre is important for use in fabrics - how it drapes and looks etc)
  • Stronger than traditional Lyocell – has superior comfort and strength characteristics
  • Does not use wood pulp
  • Closed-loop production process uses significantly less water and chemicals, less waste
  • Field to yield comparison between NC6’s microbial cellulose and cotton, trees and bamboo – NC6’s yield is greater by many times (see here on yield efficiency)
  • Possibly allows it to be marketed as one of the most eco-friendly sustainable fibres available.

 
Sounds great! There are numerous verticals that this type of fabric could be used in (wipes, nappies, mattresses, clothing etc) the logical start is to target the high-end garments market, which can pay a premium for the product, whilst being produced at a smaller scale. Thus NC6 targets fashion brands initially/ less price sensitive.

Click to watch the 2-minute video below that explains yield and benefits

Market Size ( yes it's huge).

Pretty standard to cite large market opportunities in presentations these days. However given we all see, use, wear, buy fabrics in our daily lives, perhaps this is the one time you don’t need to be convinced about the numbers. (Source NC6)

Who is Grasim Industries? (is there a better partner?)

Really important. Grasim Industries is a subsidiary of Aditya Birla Group which turned over ~$48.5 billion in 2019, was India’s first global conglomerate, operates in 34 countries (Approx $660b Mkt cap – their Nov 2020 Group Presentation HERE). Huge in fabrics and retail fashion. Hard to think of a better collaboration partner for NC6 and it is a non-Chinese partner which has many advantages when working on new tech. Spend two minutes researching Grasim and you will notice the focus on environmental sustainability, another plus. They have an R&D facility focused on the development of new fibres and in particular green fibres. If you are going to develop, look to pilot production, introduce your product to fashion brands, then Grasim brings credibility and ability to these functions. A key to note is that while they have jointly lodged a patent, they have not finalised commercial terms as yet. (at A $14m Mkt cap this does not really concern me as yet). More interesting is how cheaply the technology could be acquired, by taking out NC6, a rounding error for Grasim. Does Grasim invest in NC6 to hold a stake? 

(image below from Aditya Birla Group Nov Group Presentation)

And then there is Celluair.

In Sept 2020, NC6 invested in Celluair, taking a 20% holding for $200k. CelluAir, an Australian company developing an Advanced Filtration Technology (“AFT”) based on nanocellulose. (I declare an interest in Celluair as a shareholder). Celluair has developed a filtration technology using nanocellulose. Developed at Queensland University, they have produced a filtration fibre made naturally, which meets the requirements of N95 masks for instance, but is more breathable, and not synthetic, more environmentally friendly. They are going through scaling trials and testing currently. And the production of the material can be done with all off the shelf manufacturing processes. CelluAir is being incubated by Innovyz, the commercialisation specialists responsible for developing and listing of Titomic Limited (ASX:TTT) and Amaero International Limited (ASX:3DA).

No-one is discussing this potential, however, they should be. If the fabric scales, they can move to licence to various producers in various countries. The COVID crisis highlighted that the world was dependent on N95 filters (oil-based/made of plastic) coming largely from China. Prices spiked ridiculously, and countries had to queue up for supplies. Countries will mandate domestic production of certain essential supplies going forward, and PPE filtration will be a big part of that. Again, if Celluair can show it scales, it will have a better, more environmentally friendly material, that would have minimal price differential when at scale. And it would suit multiple licencing deals, so no one producer is dependent on a few producers of the key N95 layer. But beyond the PPE/Mask market, the industry uses for these filters is huge. It was originally targeting industrial applications. We expect an update soon.

Celluair/NC6 Joint Presentation

The Market Cap (tiny), despite the price action.

I am loathed to write about stocks that have more than doubled in a few days, but this deserves attention. Despite the run, NC6 is trading 34% below its rights adjusted IPO price ($0.1810). Perhaps NC6 listed to early along the development path, but its tech got the market excited initially, hitting 34.5c high. Also, the price pre-announcement was unjustifiably low, at 5c, it was $6.5m fully diluted!!!.

The market cap at 12c is $14.8m and if all options were converted and paid for along with performance rights then the Mkt Cap is $16.4m. I see shell companies trading near half the market cap. And whilst earnings are not near term, the size of the partners, and markets, and time along the development pathway, I struggle to find an opportunity as big at this at the cap. (I acknowledge there are still many risks to development, scaling and commercialisation).

Summary.

Since Wednesday’s announcement, NC6 has turned over around 64m shares, or to look at it another way it was averaging about 5-20 trades a day and on Thursday there were 1,936 trades alone. So trading money is in, and it may well want to find a way out. My view is that the prize is sufficiently large to follow the company and see how it progresses, given the cap in a market that is willing to trade growth opportunities on far greater market caps than we see here.  I am very close to the Celluair opportunity, and I think there is a very good fit and opportunity to collaborate between them and NC6, and the market has not really cottoned on to the potential of that market either.

About Nanollose.

Nanollose Limited (ASX:NC6) is a leading biomaterials company, commercialising scalable technology to create fibres and fabrics with minimal environmental impact.  

The Company has developed the patented tree-free nullarborTM fibre for clothing and textiles and nufoliumTM for non-woven textile applications, including personal wipes.  The Company is currently working with globally recognised industrial partners, to accelerate the development and commercialisation Nanollose’s Tree-Free fibres.

NULLARBOR FIBRE - CLOTHING & TEXTILES

  • Nanollose has developed the patent pending tree-free nullarborTM fibre,  a substitute for Rayon - a well established fibre currently derived from trees.
  • Collaboration Agreement with Grasim Industries (India), a globally recognised industrial partner, to accelerate development and commercialisation Nanollose’s Tree-Free fibres.
  • First wearable garment made using nullarborTM Tree-Free Rayon with standard industrial equipment - First garment ever made using a plant-free rayon fibre.
  • nullarborTM feels and looks almost identical to Rayon.
  • Can be retrofitted into existing infrastructure in textile and clothing production processes.
  • The commercialisation of nullarborTM fibre is the Company’s first priority.
  • Rayon fibre market worth US$16.3 Billion in 2019 and growing to an estimated US$24 billion in 2025.
NUFOLIUM FIBRE - NON-WOVEN TEXTILE APPLICATIONS 
  • Nanollose also developed nufoliumTM for non-woven textile applications, including personal wipes.
  • Collaboration Agreement with Grasim Industries, also extends to the commericalisation of nufoliumTM fibres.
  • Collaboration agreement with Codi Group, Europe’s leading producer of personal wipes, to develop a viable consumer wipe product, using Nanollose’s TreeFree nufoliumTM nonwoven fibre.
  • The personal wipes market estimated to grow to US$23.1b by 2025, at a CAGR of 5.6%.
  • A key driver for this market is growing concerns regarding personal hygiene and sustainability, with growing pressure to move away from single use products. 

Disclosure.

I am a shareholder in NC6. I am a shareholder of Celluair. Wentworth and the Author participated in the NC6 Capital raise at $0.055 for which Wentworth was paid a fee. NC6 has no relationship with Wentworth and Wentworth receives no fee for this note. NC6 has had no involvement in the note.

Best, 
Tom

Thomas Schoenmaker
Head of Wealth Management
Director

The "Bull and Bear" and "Desk Notes" are short commentary pieces by the author and not research or necessarily the views of Wentworth Securities or Wentworth's other advisors and Directors. 

If you think someone else would like to receive the emails, just let me know, and I can invite/add them to the distribution list. Alternatively, if you do not wish to receive the emails, just drop me a line and I will remove you. (There is a subscribe button above and unsubscribe below) 

Nothing in these notes should be viewed as personal financial advice to you, it is not written for you personally, and in no-way considers your personal situation.  Whilst these notes discuss markets, macro and companies, and look to raise ideas and discussions, you should not act on the content of the note without seeking your own professional financial advice. The content is general in nature. As a general rule, you should always consult with a financial advisor prior to making any decision on buying or selling an investment. I am always happy to discuss the content or take feedback. 

View this email in your browser
 
Subscribe to Bull and Bear
Follow us on Twitter
Website
Financial Licence & Disclaimer: Wentworth Securities Pty Ltd ("WWS") (ABN: 96 155 409 653) (Australian Financial Services Licence No: 422477), and Wentworth Global Capital Finance Pty Ltd ("WGCF") (ABN: 11 155 410 843), Corporate Authorised Representative of WGS (AFSL: 422 477).  This publication is intended solely for information purposes of WWS’s Wholesale, Sophisticated and Professional Investors (as defined by the Corporations Act 2001 (Cth) or the equivalent in each respective Jurisdiction. This communication is not an offer, invitation, solicitation, advice or recommendation with respect to the subscription for, purchase or sale of, any security, and neither this document nor anything in it will form the basis of any contract or commitment. Nothing contained in this document constitutes legal, tax or other advice. WWS, their employees, consultants and its associates within the meaning of Chapter 7 of the Corporations Law may receive commissions, underwriting and management fees from transactions involving securities referred to in this document (which its representatives may directly share) and may currently hold interests in the securities referred to in this document. WWS advise that they and persons associated with them may have interest in the above securities and that they may earn brokerage, commissions, fees and other benefits and advantages whether pecuniary or not and whether direct or indirect, in connection with the making of a recommendation or dealing by a client in these securities, and which may reasonably be expected to be capable of having an influence in the making of any recommendation. A reference to this communication includes all attachments.
Copyright © 2021 Wentworth Securities Pty Limited, All rights reserved.


Want to change how you receive these emails?
You can update your preferences or unsubscribe from this list.

Email Marketing Powered by Mailchimp